It’s not often that you can glean investment wisdom from a Senate hearing.

But that was certainly the case on May 12 during a hearing on the American Mineral Security Act of 2015.

You see, the United States is dangerously dependent on certain imported metals and minerals.

According to the Congressional Research Service (CRS), the country is nearly 100% reliant on imports for 19 minerals that are crucial to both our economy and our national security.

Most of these metals come from China. And we face a constant risk that the communist country could cut us off at any time.

But there’s a solution to our dependence that would open up huge domestic investing opportunities. That is, if the federal government can get out of its own way…

China’s Appetite Leaves Little for U.S.

The imported materials the United States is most dependent on include chromium, platinum group metals, manganese, cobalt, graphite, and rare earths such as dysprosium and yttrium.

The situation is particularly bad for graphite, as the United States hasn’t produced graphite since 1991. It’s 100% dependent on graphite imports from China, which produces 70% of the world’s supply.

Graphite is extremely critical to U.S. industry. In fact, the Pentagon’s Strategic and Critical Materials 2015 Report on Stockpile Requirements listed natural flake graphite as one of the “shortfall materials” that the United States should amass as a strategic material.

That’s because graphite is an excellent conductor of heat and electricity. It has a high natural strength and stiffness, which it maintains at very high temperatures. And it’s resistant to chemicals.

Graphite is currently used extensively in the steel and automotive industries and for lithium-ion batteries, as it’s the best material for the anode of the battery.

Demand for the higher-value flake graphite (as opposed to amorphous graphite) is expected to double by the end of the decade – thanks to the rise of Tesla Motors (TSLA) and other battery makers. A typical lithium-ion battery uses 10 to 15 times as much graphite as it does lithium (around two to three kilograms). And because of losses during manufacturing, a lithium-ion battery actually requires up to 60 kilograms of graphite.

Of course, China is the world’s leading producer of many of these much-needed commodities. Currently, the United States gets more than 90% of its rare earth supply from China.

That puts America in a very vulnerable position, should China decide to stem its exports or stop them completely.

China could suppress it’s trading with the United States as a form of political punishment. But, even if China doesn’t throw its weight around, we’re still at risk.

You see, China is continuing to modernize and grow its middle class. As it goes down this path, China will need to use more and more of these critical minerals for its own economy.

That may leave little, if any, available for export to the United States.

Feds Blocking Alaska’s Riches

The situation wouldn’t be so dire if the federal government would cooperate.

The Senate hearing from last month focused on modernizing the domestic minerals legislation. That’s because Alaska has many of the minerals our economy needs.

The Deputy Commissioner of the Alaska Department of Natural Resources, Edmund Fogels, pointed to the Bokan Mountain deposit, which contains many of the in-demand heavy rare earth metals. That deposit is currently controlled by Ucore Rare Metals Inc. (UURAF).

Fogels also spoke about the Graphite Creek deposit, located on the Seward Peninsula. This is actually North America’s largest graphite deposit and is controlled by Graphite One Resources Inc. (GPHOF).

Both of these companies, while positioned to do well, are penny stocks. That means they’re high risk and require a lot of due diligence.

Not to mention that it takes seven to 10 years to get a permit for a mine. This long wait is preceded by several years of geological, engineering, and environmental studies – just to get to the permit stage!

Then, if a permit is granted, another two to four years pass before construction is done and a mine is ready to produce.

This is the process Alaska’s Republican Senator and chair of the hearing, Lisa Murkowski, is trying to streamline.

Unfortunately, Senator Murkowski’s similar bills on streamlining mine permitting failed in 2013 and 2014. Predictions give the 2015 version only a 30% chance of passage in the Senate.

You’d think Congress would stop stepping on its own feet for something as crucial as this. But it appears the blundering will continue.

And the chase continues,

Tim Maverick

Tim Maverick boasts decades of experience in the investment world. He spent 20 years at a major brokerage firm - as a trading supervisor and broker working directly with clients. Learn More >>

Comments (1)

Tim,
The USA is not as dependent on Natural Flake Graphite as you have been lead to believe. My company Asbury Graphite has been involved in the Natural Flake graphite business for 120 years and we do not purchase 100% of our demand from China.
I have not read or seen the Pentagon’s Strategic and Critical Materials 2015 Report on Stockpile include Graphite thus i can not comment on if this report is accurate.
I can say that I do not believe the USA government should be involved in keeping stockpiles of Minerals. The USA government use to do keep a strategic stockpile of Graphite and finally sold off all the supply. If the USA feels they need a strategic stockpile they should work with privit industry.

Donald Trump ran a campaign on hyperbole and vagueness. Now as he prepares to take office, we take a closer look at his contradictory statements on science to make sense of the future of our favored industries.

It’s easy to dismiss celebrities and politicians as having hidden agendas. On the other hand, scientists that uncover cold, hard facts, deserve our respect for their endeavors. But respect is not worship.